San Jose Pitches Talent over Tax Breaks in Amazon Sweepstakes

San Jose's bid for Amazon's HQ2 didn't include any tax breaks. Instead, Mayor Sam Liccardo pitched the city on its own merits. (Photo via Institute for Local Self-Reliance)

Instead of offering tax breaks, San Jose pitched its talent, education and status as Silicon Valley’s largest city in a bid to lure Amazon to town.

The bid represents a show of restraint compared to other cities and states that had until Thursday to submit proposals to Amazon. The Seattle-based online retailer, which last month unveiled plans to build a second headquarters expected to bring 50,000 jobs and $5 billion in construction, said it would choose its second home based on the financial incentives local governments are willing to offer.

More than 100 cities played into Amazon’s ploy with hashtags and publicity stunts, paving the way for what experts expect to be a multibillion-dollar giveaway.

In San Jose, however, Mayor Sam Liccardo said his city has enough to offer without resorting to tax breaks. In interviews with other news outlets, the mayor called corporate handouts a thing of the past for San Jose.

“Well, what we typically see is that these decisions are made in corporate boardrooms focusing on one key determinant above all others, which is talent,” Liccardo told a CNBC host in an Oct. 5 interview. “These companies, big companies like Amazon, want to be where tech talent is, and there’s no amount of public subsidy, whether it’s in the form of a tax break, a fee reduction or anything else, that’s suddenly going to make a $5 billion investment happen if the workers aren’t in the city with the skills ready to roll.”

San Jose officials proposed sites in the city’s northern business district, southern edge and transit-connected downtown.

In a series of tweets last month, Silicon Valley Congressman Ro Khanna (D-Fremont) agreed that cash-flush tech companies shouldn’t be asking for tax breaks from cash-strapped local governments. Instead, he added, they should invest in communities.

Though San Jose declined to offer Amazon the best perks, California Gov. Jerry Brown said the company would get up to $300 million in tax credits and other subsidies if it hunkers down in the Golden State.

Bay Area cities continue to grapple with soaring housing prices, and the idea of accommodating yet another corporate giant has raised concerns about displacement and the rising cost of living. San Jose is already bracing for Google’s potential move into the downtown neighborhood around Diridon Station.

A report making the rounds on the so-called Amazon sweepstakes found that the e-commerce behemoth has reaped enormous public subsidies by pitting cities and regions against each other. From 2005 to 2014, more than half of Amazon’s new data and fulfillment centers raked in some $760 million in taxpayer incentives, according to a study by an advocacy group called the Institute for Local Self-Reliance.

“Extracting economic development incentives like these has been a vital part of Amazon’s expansion strategy for the last decade, our review of dozens of these deals shows,” the study’s authors wrote in their November 2016 report. “Prior to 2005, Amazon operated only a handful of warehouses, and it chose locations mainly based on maximizing its sales tax advantage. But as Amazon grew it increasingly staked itself on rapid delivery, and beginning in 2010, Amazon overhauled its logistics strategy in order to start locating a fulfillment center within striking distance of every U.S. city. This meant foregoing its sales tax exemption in many states, and so Amazon honed its ability to secure other kinds of tax breaks. It focused on getting officials to subsidize its new warehouses, a strategy that has paid off handsomely.”

Instead of catering to multi-national corporations adept at dodging public obligations, the report suggested, cities should invest in local, independent businesses.

Mayor Liccardo, who falls squarely on the pro-business side of San Jose’s City Council, called for the same approach in an op-ed for The Wall Street Journal earlier this month.

“Some 95 percent of Silicon Valley’s job growth comes from new small-business formation, and when those homegrown companies develop into larger firms,” he wrote.

The multi-national’s and local, independent business will appreciate it, and figure out on their own that a safe, efficient, and law-abiding city that appreciates and fosters businesses that want to make a profit is where they want to locate.

Amen. Anyway, the City Manager’s Annual Report at Tuesday’s Oct 17th Council meeting disclosed that we have about $2.4 million in urgent, but unfunded needs, plus facing a $35 million deficit for a total $37.4 million budget hole. Our projected revenue from the sales tax increase is below the forecast (despite a roaring economy). All Sam can do is put on a brave face.

The council’s priority setting neglected to include anything about core services (public safety, infrastructure, etc.) or revenue enhancement, but priorities such as low income housing and women empowerment were listed.

There’s a very good reason for Amazon to locate in Silicon Valley; a better reason than tax breaks: the synergy that high tech companies get from close proximity to each other is worth a lot more than tax breaks (and I’m sure Amazon gets plenty of those elsewhere).

People are what make companies, and people get together around here and talk to each other. The benefits can’t be quantified, but they are enormous. Otherwise companies, and especially high tech companies, would always locate wherever it’s cheapest, or has the prettiest views, etc. Hawaii would have a ton of them.

Amazon would be crazy not to pick Silicon Valley. I once worked at RTP at a satellite tech office, far away from the “center of the universe”. After a failed billion dollar project, they cut their losses. Remote sites are good for filling out the stubs, but the brain work needs to be done where the magic happens, and the magic doesnt happen in OKC…